OBBBA Tax Boost for Construction Companies

Q: How does the OBBBA change depreciation for construction equipment?

Answer: The OBBBA permanently reinstates 100% bonus depreciation for qualified construction equipment and certain property improvements placed in service on or after January 19, 2025. This means construction businesses can fully deduct the cost of new and qualifying used machinery, vehicles, and certain nonresidential real property improvements in the year they are acquired and put into use, providing a significant immediate tax saving and improving cash flow for reinvestment.

Q: Is there a specific deduction for new construction facilities under OBBBA?

Answer: Yes, the OBBBA introduces a new, temporary 100% deduction for “Qualified Production Property” (QPP). While primarily geared towards manufacturing, this provision can apply to industrial construction projects if the newly constructed nonresidential building is primarily used for qualified production activities. To qualify, construction must begin after January 19, 2025, and before January 1, 2029, with the property placed in service before January 1, 2031. This offers a substantial incentive for firms involved in building industrial or manufacturing facilities.

Q: What’s the impact of OBBBA on Section 179 expensing for construction businesses?

Answer: The OBBBA significantly increases the Section 179 expensing limit, allowing immediate deductions for a broader range of construction-related assets. For tax years beginning after December 31, 2024, the maximum Section 179 deduction is raised to $2.5 million, with a phase-out threshold of $4 million, both of which will be indexed for inflation. This allows small and mid-sized construction firms to immediately write off a much larger amount of qualifying purchases, including equipment, software, and certain building improvements, rather than depreciating them over several years.

Q: How does the OBBBA affect accounting methods for residential construction contracts?

Answer: The OBBBA expands the ability for residential construction contracts to use the completed-contract method of accounting, which defers income recognition for certain projects. Previously limited primarily to contracts with four or fewer dwelling units, the new law expands this exception to include residential construction contracts involving more than four units, such as apartment or condominium complexes, provided the project is completed within three years. This change offers contractors building larger residential developments the flexibility to defer the recognition of income and expenses until the contract is fully completed, preserving cash flow during long project timelines.

Q: Does the OBBBA have any provisions related to Opportunity Zones that affect construction?

Answer: Yes, the OBBBA renews and significantly enhances the Opportunity Zones program, which can stimulate new development and construction activity in designated low-income areas. The law makes the Opportunity Zone incentive permanent and establishes a redesignation cycle for new zones every 10 years, with the next new map of zones taking effect on January 1, 2027. While some eligibility criteria have been tightened, the long-term certainty and enhanced benefits, particularly for rural investments, are expected to drive increased capital investment into these areas, leading to more construction projects, including residential and commercial developments.

Disclaimer: This article provides general information and should not be considered professional financial or tax advice. Please consult with a qualified CPA or financial advisor for guidance specific to your individual business needs.